2011 Year End Review
The stock market, as measured by the S&P 500, finished 2011 less than one point from where it started the year, the smallest change in history. With dividends factored in, the market showed a small gain for the year. At the high point for stocks, the market was up 8% for the year. At its low point, the market was down 12% for the year. If you missed out on the three best days of the year, your return went from a small gain to a 10% loss. It was, to say the least, a very volatile year for stocks, especially for international stocks. Bonds turned in another good year as interest rates stayed at historic lows throughout the year.
2011 was an eventful year. Some events were good, such as an improvement in the job situation in the U.S., and strong corporate earnings; and some events were bad, such as the debt crisis in Europe and the continuing mortgage problems in this country. The U.S. economy suffered during the middle of the year, but then showed signs of increasing strength during the fourth quarter.
This is the time of year we are always asked what we think will happen with the markets in the New Year. As is normally the case, our crystal ball is less than clear about the future. However, in trying to peer through the fog of uncertainty, we do see some reasons for optimism in the upcoming year. An economic recession was avoided this past fall and we are seeing the economy growing once again. The jobless rate is shrinking, although slower than we would like to see. Consumers continue to pay down debt, which increases their purchasing power. Government spending is declining as a percentage of our GDP (A good thing), and the Fed has indicated that they will remain accommodative toward growth for the foreseeable future.
On the downside, we continue to believe that gold is overvalued and will eventually sell for much lower prices than we see today. The debt crisis in Europe will remain a concern and has the potential to be an anchor on economic growth. Likewise, the housing and mortgage markets in the U.S. continue to suffer and likely will for the foreseeable future. Progress toward fixing these problems would go a long way toward getting our economy growing at a more reasonable rate again.
What is most likely in 2012 is that there will be times that you wonder why you would own anything but stocks, and others times you question what you were thinking to ever agree to own any stocks. In other words, it will probably be a normal year. The capital markets are, and have always been, volatile. But for the patient investor they provide returns to justify the risk and allow investors to meet their financial goals. If you would like to receive an updated copy of our Form ADV, please feel free to contact us.
About Wabash Capital
Wabash Capital is an employee-owned registered investment advisor based in Terre Haute, Indiana, providing investment advice and professional portfolio management to individuals, corporations, banks, trusts, retirement plans and endowments. To learn more about our business, please visit www.wabashcapital.com.
